in this day and age, we have the resources to spread word of progression in our society, we shouldn't worry about our own political interests and instead we should strive to provide sheer credibility to our citizens. >> how did you arrange your interviews in your documentary? >> as i did, i brainstormed the types of individuals i'd like to interview and then began searching for such individuals throughout the community. once i found them, i began to contact them and letting them know who i am, where i come from, my cinematic background and what i'm working on at the time and usually i receive positive resources and soon i begin arranging the logistics of the interview. >> what was the most fun thing you worked on in your documentary? >> i would say the most fun thing i got to work with was definite he the rally, the drug rally, because it was such a unique event in tulsa, especially with the conservative -- how conservative oklahoma is and it was neat to be exposed to that. .

>> thank you for talking to us, and again, congratulations. >> to me, identifying with the particular set of creeds our beliefs about how we governor selves. >> it should be both a challenge and a strength. in my view, people do not

understand the strength of partisanship. if you belong to a party, they have a platform. that platform will pretty well laid out their basic beliefs, so it is a good starting point for the voter. >> you could watch the entire video and all the other videos at studentcam.org. >> we will hear from president obama and get reaction from congressional leaders. later, treasury secretary geithner it discusses the economy and financial regulations at the daily white house briefing. now here is president obama. >> hello, everybody. i want to welcome congressional leaders to one of our periodic meetings, coming off a very tough work period.

one of the things we will be talking about is the economy. we will be presenting the latest report from the council of economic advisers on the impact of the recovery act. what we are seeing is significant improvement in the economy and stabilization. everybody here, republican and democrat, recognizes we still have work to do. there are too many people still unemployed and the housing market is still very soft. we are going to spend some time exploring how we can build on the progress that has been made, to make sure that ordinary americans are seeing improvements in their own lives. i am also going to be interested in talking to them about our ability to move quickly on a financial regulatory reform package. i think all of us recognize that we cannot have a meltdown in the financial sector once again,

putting the entire economy in peril. there is one lesson that we have learned, an unfettered market where people are taking huge risks are risks and expecting taxpayers to bail them out when things go sour is really not acceptable. as a consequence, i am confident we can work out an effective, bipartisan package that assures that we never have too big to fail again, that consumers are adequately protected when it comes to financial instruments, whether mortgages or credit cards or debit cards, that we have a strong mechanism to [unintelligible] something that we have not had. of derivatives market is in the shadow economy, but is enormously powerful an enormously risky. we want to get that today like so that regulators and ordinary americans know what is going on

when it comes to this segment of the financial system. i am confident that if we work together diligently over the next several weeks, we can come up with a package that serves the american people well and does not put americans in the position where they have to choose between a terrible economic situation or rewarding people for failed policies and bad risk-taking. that is our priority of this meeting. finally, we have of range of issues including a start treaty that i believe needs to be ratified, and a host of other issues related to appointments that we are going to talk about. i will be listening to congressional leaders about

their priorities over the next several months. i appreciate you taking the time to come, and i hope this will not only be a productive meeting but we will see a productive session over the next several weeks. thank you very much. i am absolutely confident that it will prevent bailouts. >> good morning, everyone. not surprisingly, we spent a good amount of time talking about the issue of financial regulation. as all of you know, it appears as if the bipartisan talks have broken down, as the democratic negotiators kind of pullback -- kind of pulled back. where we are now, the chairman

dodd bill came out of the banking committee on a straight party-line vote, is a bill that actually guarantees future bailouts of wall street banks. in fact, if you look at it carefully, it will lead to enlist taxpayer bailouts of wall street banks. that is clearly not the direction of the american people would like for us to go, and also not the direction senate republicans would like to go. i think the solution to this is for the bipartisan talks to resume between chairman dodd and ranking member shelby and others, and hope that we can get back together and address this very important issue on a bipartisan basis, which i thought we rating in that direction until the strings were kind of pulled on the democratic negotiators toward the end of last week. i hope we will get back to the table and come back with something that can pass on a

bipartisan basis. the american people are continuing to ask the question, where are the jobs? when you look at this financial- services bill, my concern is that it is going to protect the biggest banks in america and harm the smallest banks. the big banks will get bigger and smaller banks will be gone. at a time when small businesses are looking for loans, i think the bill that came to the house, at a minimum, will make it more difficult for community banks to provide loans to small businesses. in addition, the american people are looking for jobs, but they do not see washington doing anything to help the private sector create jobs. it is all about more government, bigger programs here, and i just think that the uncertainty that continues to exist in the country about policies coming out of this administration and this congress are throwing a wet blanket on employers and putting them in a

position that they are scared to death of what is going to happen next. >> senator corker said that your side, republicans made a mistake by not making a deal in committee, and that you all had pulled back from doing that. does he have a point? >> i think senator corker has been an enormous amounts of time and desperately wanted to come together. he also shares my view as to why it broke down. you might ask him that question. the recent write-down was because chairman not was pulled back -- the reason it broke down was because chairman of god was pulled back. -- chairman dodd was pulled back. all of you worked writing that. my message is, let's get back to the table and try to get this job done. b corker has been at the top

of the list. you can go back and second-guess every step of the way. this is a complicated subject, another massive bill that we believe in its current form provides an analyst taxpayer bailout of wall street firms. that is exactly the opposite of what the american people expected us to do. so we have serious differences of opinion here. the way to resolve them is to get back together. >> if you coddle the big banks and let them take any risk they want, what are the big banks working so hard against it? >> the community banks are protected against it is. they managed to unify opposition to it. from our point of view, it is not a question of the banks, whether they are big or small. it is a question of the taxpayers. none of us ever again want to have a situation where the taxpayers' money is used to bail

out large failed unit -- institutions. we do not want to ever do that again. it is the view of all the people i have been talking to who really know the subject well that we are taking that experience in the fall of 2008 and institutionalizing it, setting up in perpetuity the potential for additional taxpayer bailouts of large institutions. that is clearly the wrong way to go. we ought to get back to the table and see if we can fix it. i am not going to speak for the president. i am giving you my view. i think the key here is to get the negotiators back to the table. that has broken down. i think since all of you wrote about it, you know why it broke down. the democrats were pulled back by the white house, and the impression one would get from that is that they thought it was a great political issue for

them and they wanted to try to jam us. the bill have reported out of committee as an endless taxpayer bailout of wall street banks. that is not a political winner, and is also the wrong thing to do for the country. >> a report that you met with hedge fund managers in new york -- a lot of people are viewing this argument -- >> you can talk to the community bankers in kentucky, but i am telling you about them. this is not everybody. we talk to people all the time. i am not denying that. what is wrong with that? that is how we learn how people feel about legislation. but the community bankers in kentucky, the main street guys, are overwhelmingly opposed to this bill. >> some would say that it is to deflect from the fact that you

are defending the large banks. >> i would say that is inaccurate. >> the dow is up 70% from its low. does the president deserves credit for any of that? >> the american people are still asking the question, where all the jobs? there are some bright spots in the economy. things are getting better. the value of homes continues to be at all-time lows. when you look at the unemployment number, and those who have dropped out of seeking work, there is still a lot of concern out there. the american people want to know what washington is going to do. it is not about growing the size of government, which is really what washington has done over that last year. until we get money back into the hands of american families and small businesses, we will not see the kind of recovery that people want.

the president said when he signed the stimulus bill that unemployment would not exceed 8%. we have unemployment near 10%. the president said when i sign this bill, it will create jobs immediately. yet nearly four million americans have lost their jobs. >> do you think the president will win any republican votes? [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the morning. i am very pleased to be here with the distinguished majority leader of the senate, harry reid, and the leader of the house, steny hoyer. we just had a very constructive bipartisan meeting with president of the united states. we congratulated him on his success with the new start

treaty and with the nuclear security summit that was held in washington d.c. we are very proud of his leadership in that important regard and hope that it will have bipartisan support. we talked about jobs. the president gave us the economic impact of the american recovery act. i would like to say that one comment from the economic advisor to senator mccain campaign said, when you take it all together, the response to the recession was massive, unprecedented, and ultimately successful. so again, we thank the president because at least 2 million jobs were created or saved by the recovery package. in this week of april 15, it is important to note that in this recovery package, 36% of the

funds were for tax cuts for the american people, largely for american families. some for america's businesses, and others to create a green energy jobs and clean energy jobs for the future. 36% of the recovered package was about tax cuts, much of which will be realized this april 15. a third issue of discussion, in addition to security and economic security is the issue of wall street reform. the time is long overdue for us to into the time where wall street banks think it is ok to nationalize the risk and privatize the gains. they make all the gains, all the profit, and come to the taxpayer to bail them out when things go sour. so we saw with the health care

reform, the republicans were not willing to regulate -- to rein in the insurance industry. now we will see if they are willing to rein in the financial industry, not to paint everyone with the same brush, because that would not even be true to do so, but the fact is, we are here for america's working families, and we must put an end and make sure that never again doesn't happen that reckless this on wall street as people lose their jobs on main street. >> we know tomorrow is tax day, but the american people must be reminded that 98% of americans got a tax cut last year. it is also important to recognize that we have done some good things for the economy, but it is little solace to people

who are afraid they will lose their home or have lost their homes or their job. we have done a lot. we have a lot more to do. the economy is getting a little better, but it is certainly not out of the woods yet. the discussion in the cabinet room today was pretty interesting. it is obvious that the republicans are saying no again to progress for america. they have said no to virtually everything so far, and this is no change. the republican leader yesterday on the senator said he did not like what was coming out of the banking committee. that is to do regulation reform. chairman dodd has tried everything. he tried with the ranking member for weeks, no deal. he tried for weeks with one of the members, corker, no deal. we are going to move forward as rapidly as possible with the bill that chairman don has

brought out of that committee. if the republicans want to improve on it, we are happy to work with them. we want to move forward on this and we have to, because it is time that we recognize that meeting with hedge fund managers is not the way to solve problems for the american people. what we need to do are things that help people on main street. we cannot have banks that are too big to fail. finally, we talked in the cabinet room about nominations. right now, on the senate calendar, the republicans have held 94 nominations. it is outrageous. people in need to work in this government to make it work better are being held up for no good reason, not because of qualifications. during the first two years of the bush administration, during

his first term, the first congress, 100 circuit and district court judges were approved. obama has gotten 18. it was a good meeting. i am glad we had it, but i think the american people must recognize it is difficult to work with the party of no. >> thank you very much. it was a candid meeting, and it was a good meeting to that extent. obviously, the american people are not so interested in meetings as they are in action. we will see what action occurs coming forward. the analysis of the recovery act, i have not read it, but the president had on the desk as we walked in. i do not need to read to know that the american people in november 2008 were angry and concerned about the way the

economy was, the fact that they have lost over 3 million jobs, the fact that the economy was shrinking, the fact that its strong during the first quarter of 2009 -- the fact that it shrunk by 6.4%. they elected an administration and congress to respond to try to grow our economy and get jobs back. we confronted the deepest recession we have seen in three- quarters of a century. the good news is, the economy is coming back. the economy has gone from 6.4% shrinkage to 5.4% growth in the last quarter of last year. employment has gone from losing 726,000 jobs per month to 162,000 gain last month an average gain of 54,000 of the last week. that is progress. it is not success.

we need to do more, and we talked about jobs. that was really the focal point that we brought up, jobs for america. while we have had some progress, success will be when we start closing that 8 million jobs lost gap that we saw during the last year and a half from the previous administration. in addition to that, we have seen it reaped -- we have seen our stock market broke over 76 -- stock market grow over 70%. the nasdaq were over 80%. we have seen the value of retirement funds for working people come back. we have made progress, but not success. we also talked about small businesses being able to access capital so they can expand and create jobs and grow the economy. that is very important priority for us in the house and in the senate, and on our side of the

all. we look forward to the republicans joining with us, both the house and the senate, to try to go the economy -- to try to continue to grow the economy and get back to a place where we were went under the plan administration, we created 21 million jobs in the private sector, as opposed to less than 2 million, 90% less new jobs in the private sector under the bush administration. so we want to work together and get america back to work. we want to get americans where they wanted be when in 2008, angry about the policies of the past, they wanted new policies to be in place. we put them in place, they are working, and there is more work that needs to be done. >> did the meeting in abruptly or did it break down? >> the meeting began and ended on the subject of jobs.

from beginning to end, related to the economic and national security of the american people. we are hoping that we can get bipartisan support to have wall street reform. that is not a partisan issue. we hope that many of the things that two leaders mentioned about job creation and credit for small business and trying to help localities keep teachers on the job, build america bonds to build the infrastructure of america, summer jobs for our young people -- of these initiatives should have bipartisan support, and we hope it will be soon, and we talked about that as well. again, when it comes down to what is the difference, the main difference that we came out there with was, do you want to rein in wall street? are you here for the middle class and working families in america? are you here to keep the party going for financial institutions to have been reckless, instead

of protecting those who have been responsible? >> how do you counter the republican contention that it is institutionalizing bailouts? >> it is such a diversion from the facts that it is almost laughable. it is sad. the fact is that president bush, under his leadership, it took us to the brink of financial crisis, financial disaster. with bipartisan support, we work together with largely democratic votes to support president bush to pull us back from the financial brink. it would have been a disaster for our country. regardless of how we got there, we got there through the recklessness of some on wall street, and the price was paid on main street. so for the republicans, now when we are trying to say we must put regulation and supervision in place of this never happens again, for them to say is a bailout for financial

institutions just defies credibility and every way. >> did think you can get any republican support for this bill and the senate? >> i do not know what lines were drawn in the sand. >> this is a figment of his imagination. senator dodd has worked very hard to reach out to republicans, and this is the stall we have had in this entire congress. think about this. i have spoken to the two leaders from the house. there are more than 300 pieces of legislation they have passed in the house that were held up in the senate, more than 300. a lot of them very small pieces of legislation that we would just do matter-of-factly in years past. they are hamstringing this country from moving forward.

so we are trying to work through that. so for him to draw a line in the sand, is this anything unusual or new? is what they have been doing all year. we are going to pass financial regulation reform, just like we have passed all the other things we have done this year. whether it is struggling to pass lily ledbetter, deregulation of tobacco, credit cards, mortgage fraud, national service, health care -- all of these we have had to do with virtually no republican help. >> i would like to make a comment. there are some people who like to forget that the bush administration ever existed. some people like to forget it was the bush administration that came down, ben bernanke, secretary paulson and president bush, who asked to give money to the banks. not democrats. it was democrats who responded

to the fact that president bush said we have a crisis and we need to respond. frankly, his own party did not respond nearly as well, and if it had been his own party, that would not have responded to the crisis. we have stabilize the financial community and the markets, and our economy is growing. we are starting green jobs, and the stock market value is going up, which is good for people who have retirement accounts in the stock market and mutual funds. so those are good signs. it is not, however, useful simply to look backwards. it is not useful. one of the things they did was they took the referees off the table. we talked about financial regulatory reform. philosophically, they believe that if you just got out of the way of the big banks, everything would be fine. alan greenspan has testified before congress. that was a mistake.

he is right, it was a mistake to take the referees of the deal. what happens? the little guy gets creamed, because there are no rules. there is nobody making sure that you play by the rules and you are fair. what financial regulatory reform says is look, let's put the referee back on the field, make the game fair, and make sure the little guy is not trampled. in terms of the politics of it, i think he is right. the american public knows this needs to be done. over seven daughters and son of the american public says do it, so -- over 75% of the american public says do it. >> i want to make one further point as to what the distinguished leaders have said. the bush administration took us to shambles. the democrats pulled us back from the brink of financial

crisis, as i mentioned. it was democrats who insisted that the taxpayer be made whole and that the money be paid back to the taxpayers, and almost all of that is in. an overwhelming percentage of that has been paid back. that which has not been payback will be paid back, and that was at the insistence of the democrat, so that the taxpayer was not footing the bill for that bailout. but the taxpayers have paid a price in terms of putting jobs at risk, home ownership, savings, pensions, the education of their children, and the rest. that is why we must go forward in a positive way, and we must absolutely pass legislation that rains in the recklessness of wall street's that would harm main street once again.

>> later, treasury secretary to tim geithner commented on the financial regulation bill at the daily white house briefing. this is 20 minutes. >> that afternoon. -- good afternoon. i am two minutes late, which is a vast improvement in efficiency. the president met this morning with bipartisan congressional

leadership, mainly to talk about financial reform. the upcoming legislative activity around that, and the president's strong hope to get something done as quickly as possible. secretary geithner is here to speak for a few minutes about what the president and the leaders talked about and take some questions on what was talked about abouaround financil reforms. >> i think the critical moment for reform, a lot of hard work in progress. it has been 2.5 years since this crisis started, more than a year since reports let out a comprehensive set of reforms. i think we know what we need to know about the choices we face. it is just time to decide and to move. we will make sure we have a comprehensive bill that brings derivatives out of the dark and ends to big to fail and gives consumers and investors basic protection against predation.

there has been a lot of movement around consumers. the focus is shifting to the complicated areas of derivatives and too big to fail. we have taken a lot of ideas from the other side of the aisle and have a strong package of reforms. we are close to something we can say with pride will be a strong bill to prevent us from ever seeing this kind of crisis again in the future. it is not tenable for anyone to argue that we do not need sweeping reforms. we cannot afford to leave this system in place. we are very close. we are open to ideas. the test will be what is going to work in the public interest and leave us with better protections against these basic failures and abuses. we will keep reaching out to the other side of the aisle. the tone of the discussion today was very positive. senator mcconnell said he would like to work on some things.

our test is going to be what will leave us with a strong enough set of reforms. >> [unintelligible] >> we are in a much stronger position than we were. the economy is definitely getting stronger. we are coming out stronger and more quickly than many expected and stronger and faster than many countries around the world. the president acted so forcefully initially, doing things that were politically difficult. we have been growing now for three quarters. too many people are out of work. we still have a lot of work to do. this will take a long time to heal. we will keep working to make sure we are getting a strong recovery in place. this is going to be the most sweeping set of reforms we have

contemplated since those put in place after the great depression. the system was designed for a different era. this is a very strong package of reforms. we are very, very close. we will have very broad support for this because it is so important. it is hard to argue that we can look at the devastation caused by this crisis and not say we all share a huge responsibility to fix what was broken. >> the administration has said it would like to see the bill strengthen. what areas need to be strengthened? >> to make sure there is a strong, independent authority to write and enforce rules for protecting consumers. what happened in our system was, we let people operate outside any basic constraints. the business migrated to where the rules were weakened. that is critically important. we need to bring derivatives out

of the dark so we did not have a future at aig -- so we do not have future aig's. we do not want to have the american taxpayer have to choose between putting billions of dollars at risk are facing the catastrophic collapse of the financial system. >> are you recommending language to the senators? >> we have been working very closely with chairman frank and chairman dodd to make sure the bill comes out in the strongest possible position. i have been spending a lot of time with republicans. i will continue to listen to their ideas. we want to make sure we have the strongest possible set of reforms. >> republican leaders have been saying that this fund in the

bill will likely set up perpetual bailouts. >> we will not support a bill that creates that risk. the central test of credibility is to make sure we can stand up and say that when large companies manage themselves to the point where they cannot survive without the government, that we put them out of existence. we do so in a way that does not leave consumers on a hook. the central part of this is to make sure that in future financial crises, that banks bear the cost of any risk the government has to take to protect the economy. the basic principle is to make sure people understand that we will not leave the taxpayer exposed to any risk of loss. any risk the government takes will be born but large financial institutions, which is consistent with what the

president proposed in our financial responsibility fee, which is designed to cover any losses we ultimately face as a result of park. -- as a result of tarp. >> you are saying any fund contained in the bill would have that kind of language? >> there are different ideas in the house and senate and on the other side of the aisle. the basic test for us is if the government is ever exposed again to any risk of loss, that the cost of that would be borne by large financial institutions, as it should be. it is a simple basic proposition of fairness. >> it is irrelevant to the administration whether that fund is created, whether the money is raised in advance are raised later when a problem

arises. >> we do not think it is necessary to raise in advance. senator dodd will be talking to senator shelby about this later today. i am confident we will come out with something that meets this basic test. we do not want the taxpayers to be exposed to bearing any of the losses that the government might have to take in the future as part of an effort to save the economy from unnatural collapse. -- to save the economy from financial collapse. we have been working very closely as we did in the house with senator of lincoln and heard counterparts on their efforts to design reforms on the derivative market to bring them out of the dark. i want to complement her on her initiative in laying out a strong set of elements for reform.

there is a lot in common with those basic approaches. she will be helpful in a parting out those remaining differences. this is a very strong package of reforms. we will make sure that companies like a ig will have to have the capital to back them up. >> there has been a move in recent years to bring some of these on the exchanges. is there any room for exemptions? i am thinking of the agricultural contracts. >> there is a good economic case for a carefully designed, narrowly crafted exemption for what you might call manufacturing companies, people that make real things that have a need to hedge their exposure to certain types of risk. the key thing is to make sure they do not provide an opportunity for other people to evade the basic protections of

the bill. >> lincoln's bill has been described as a pretty tough bill. does that give you 60 votes for the senate? and she has not put a bill forward, so we have to look at the details. it looks like a very strong bill, close to where we are on these things. she has been working closely with chairman got to work out the details. >> the president reiterated today that as a secretary says, we are coming up on the anniversary of this financial crisis. we cannot celebrate that anniversary with the rules from the past. it is good policy and good politics for both parties to come together and pass strong financial reform. the president was clear that he stands ready, as a secretary does, to work with the democrat or republican to make this bill stronger. in the name of bipartisanship, the president is not going to

codify bad policies. the american people expect and deserve far more from financial reform and that policy. >> on rate reform, respond to republican criticism that it does not address the fannie and freddie. >> we did not take on the broad question of reform of the broader housing finance market in this bill. we did that consciously, but we are beginning a process to figure out what the most sensible federal reforms are. we cannot leave them as they are, but for looking at the broader housing finance market as a whole. that is going to come, but we consciously decided not to do that in this bill.

>> the proposal on the table for derivatives, making them less transparent and costing american jobs. >> there is no risk of that. we are working closely with them to make sure you are being countries are moving with us. we have a broad convergence with the europeans on what we think would be an effective framework to prevent that risk. >> ben bernanke said today that under a likely tax scenario, but 2020, the deficit of the federal government will be 9% of gdp and federal government will be 100% of gdp. >> of course, that would be unsustainable, but that will not happen if congress adopts a policy the president has laid out. it will bring our deficit down dramatically over the next few

years and it -- get them closer to the point where we are living within our means again as a country. everybody realizes we are living with unsustainable deficits. it is important that congress demonstrates we are able to make some tough choices to bring the deficits down. the president's policy will bring a rounabout a substantial recovery. >> senator dodd said he wants to get a bill through the senate by the end of april. what is the administration's timetable on that? is memorial day feasible? >> obviously we want to move quickly and get a strong bill. on the basis of what we have seen, we have a very good chance of enacting the most sweeping, strongest, most comprehensive reforms since those that took place after the great depression.

i think we are in a good position to get their, but that is up to the majority leader. i do not see how -- i am a little more optimistic about our country. we have the ability to stand up and tell the american people that we acted to fix what was broken, to put in place rules to prevent this from happening again. i cannot believe we would not take the opportunity now. >> it is untenable that congress would go home to campaign for reelection in november, answering questions that the same rules that were in place two years ago, the regulatory structure that led to what we are dealing with, that those would still be in place. i do not even think that those who clearly side with the financial industry want to slow

this down think that is a good solution. >> republicans claim they have been pushed up this process. -- pushed out of this process. >> on the design of the bankruptcy process for large institutions, there has been a lot of careful detailed work done by a lot of republicans on the banking committee. center greg has been a strong supporter of making sure that the federal reserve is given the authority and accountability to constrain risk-taking by the largest financial institutions. this bill brings a revolution in terms of transparency and disclosure across the financial markets. that is something we have broad

support for a republican side. there is a long list of areas with bipartisan support throughout the process. chairman don has worked -- it is able. we started this a year ago -- it is april. he has spent so much time trying to build consensus with the group who would like to find the basis for a good, strong bill. >> on the mortgage modification program, why is it not working the way you guys said it was going to? >> i want to step back and take issue with your premise. the strategy that the president embraced has been initially successful in its most vital objective. if you think back a year ago, most people at that point living with their real problems -- prospect that house prices could fall another 20% to 30%.

we saw house prices show a measure of stability that has held for more than nine months. that is hugely important to what is happening in the recovery. that is hugely important to the tens and millions of americans for whom there home-equity value is a big measure of their financial security. in addition to that, we launched a modification program to help a set of homeowners to stay in their homes. that program has reached more than 1.1 million americans. the average reduction in monthly payments is $600 per month for the average household. that is more than 1 million americans, and we are working very hard to make sure that that program is reaching as many people as we can reach and that

the temporary relief turns into permanent relief. we are going to make sure -- one reason this is important, we wanted to move as quickly as possible. you are right that banks have been a little slow, and they did not do as good a job as they should to reach these people. we got them to move very quickly, and they provided a number of these temporary modifications without documentation. it was in place quickly and people had immediate relief. we want to make sure the people who are getting this relieve or actually eligible for the relief. there is still a lot of risk of foreclosure across the country. it will still be a painful process for millions of americans, but we will keep working to make sure this program reaches as many people as we can reach. the not miss the fundamental achievement.

we brought a measure of stability and to a lot of fear out of what is a central part of most american families basic economic security. i want to leave you with one encouraging exhortation. the level of attention you and your guys have brought to the debate of consumer protection, which was very important and helpful. the progress we have seen where you see the broad recognition -- where are to have strong consumer protection authority, which is a result of that attention. ahead of us is derivatives, too big to fail, complicated stuff. make sure you bring the same level of exposure and spotlight on the choices ahead, because we all have an interest in resisting the efforts that will be made to carve people out of

those basic protections. thank you guys very much. >> coming up next, federal reserve chairman ben bernanke talks about the u.s. economic outlook. our interview with the head of the congressional tarp oversight panel, and the senate judiciary committee questions attorney general eric holder. on tomorrow's "washington journal," we will talk about the federal tax system. a state permit arms control negotiator discusses u.s. nuclear weapons policy. we will look at legislative agenda. "washington journal" begins live

at 7:00 a.m. eastern time on c- span. >> this weekend, the first of three british election debates. for the first time, prime minister gordon brown, david cameron, an nec clegg will face off in u.s.-style debates. the first election debate is sunday at 9:00 p.m. eastern and pacific on c-span. >> c-span, our public affairs content is available on television, radio, and on line. you can also connect with us on twitter, facebook, and youtube. and sign up for schedule alert e-mail's at c-span.org. >> federal reserve chairman ben bernanke said today that the u.s. economy should grow at a moderate pace this year, but he does not expect the unemployment situation to improve significantly in the near term. his remarks came before meeting

of the joint economic committee. this is about two hours, 20 minutes. >> the committee will come to order. i would like to ask for unanimous consent -- and sent to except members' statements for the record. america is on the path to economic recovery. a large part of the credit for this turnaround is due not only to president barack obama, but also to ben bernanke, the chairman of the federal reserve, a respected scholar on the great

depression. under his guidance, the fed to creative and effective action to inject liquidity into our financial system, which saved our nation from economic catastrophe. i am confident that you will continue to steer monetary policy at the fed carefully through the next set of obstacles, balancing the creation of robust economic growth with the prevention of inflation. our hearing today on the economic outlook is timely for many reasons. just this week, the committee on economists responsible for dating the end of recessions announced the recovery is still too fragile to announce that the recession is over. but there are indications that we are indeed well on our way to economic recovery. after four straight quarters of negative growth, the economy grew during the last two quarters of 2009.

there is a consensus that when the latest g p numbers are announced on april 30, we will see that our economy continued to expand during the first quarter of 2010. the most recent employment report showed that 162,000 jobs were created in march, with three-fourths of so jobs in the private sector. manufacturing employment was up for three straight months. the stock market is at its highest in almost 15 months. temporary help, a leading indicator of the help of the labor market, has added 313,000 jobs since october 2009. sales of cars and light trucks were up in march, and many surveys of the economy are optimistic about growth in both the service and manufacturing sectors. these improvements in our economy are prove that actions taken by congress, the fed, and the administration have started

to have a positive impact. in the last year, congress enacted policies that support is struggling families and encourage job creation. the recovery act provided tax relief for 95% of american families and created jobs while investing in clean energy, infrastructure, and education. last year we extended the $8,000 first-time homebuyers credit that will spur construction jobs. we extended a host of safety net programs that will help struggling families whether the economic storm. we extended the net operating loss carryback provision that will help small businesses hire new employees. and we are boosting funding for small business loans the of the small business administration. we passed the higher at to give tax breaks to businesses that hire unemployed workers. without these measures, the death of the construction would have been much steeper and for

logger -- the depth of the contraction would have been much deeper and longer. the true cost of the financial system failure in terms of lost employment and pain to working families is immeasurable. much of the budget deficit over the next 10 years should be attributed to the financial crisis. economists have estimated that the budget deficit has increased by 3.1 trillion dollars due to the decline in tax revenues from long line of workers who have lost their jobs. what we have come far in stabilizing of financial system, we would like to hear your thoughts on various reform proposals that have been introduced and are being considered before congress to make sure that financial institutions did not take on excessive risk, and have a program of capital requirements. we also look forward to having your take on upcoming challenges, including the

housing market. one important factor in the housing market its current recovery is the low mortgage interest rate that was sustained by the fed purchases of mortgage-backed securities and fannie and freddie debt. now that the fed has completed those purchases, we would like to hear your assessment of the housing market and the impact of the fed's action on more get -- on mortgage rates. i am grateful for your leadership and ushering in new rules to prevent unfair or deceptive practices with respect to credit cards account and the rules the fed put in place to curb excessive overdraft fees. we thank you for your testimony today, german bernanke, and look forward to working with you -- chairman bernanke, as the committee continues to focus on helping our economy recover and expand. >> i am pleased to join in welcoming chairman bernanke before the committee.

the injection of $1.3 billion of liquidity quelled the panic in financial markets. although i disagree with the fed's participation of the bailout of aig and bear stearns, the fed's timely action as lender of last resort in markets prevented the financial panic from becoming a depression. during the spring of 2009, the stress tests and subsequent capital increases by large banks restored confidence in financial institutions and markets. largely because of these decisive actions, the u.s. economy is now beginning to recover. however, the recovery will continue to be sub-par as businesses to lay critical hiring and investment decisions due to the uncertainty generated by president obama and congressional democrats to increase taxes, raise their prices, an act of killing regulations, and generate a dangerous level of federal debt. despite recent guidance from washington bank examiners about

commercial mortgage loans, i am concerned the bank examiners were exacerbating real estate problems through their inflexibility. pressed by regulators, community and regional banks are not renewing reforming commercial mortgage loans even though their underlying cash flow can easily service the debt. that said, i would like to share my concerns about monetary policy going forward. we are in danger of repeating mistakes from the 1970's. because of the lag time between monetary policy decisions in their effect of the federal reserve must act to prevent inflation well before the public perceives that prices are rising. . .

>> additional costs are lurking in the form of regulation to control greenhouse gas emissions -- gas emissions. despite these tax increases, the cbo projects that higher spending on the president's budget would create deficits of 9.8 trillion dollars over the next decade. it would spike debt to 90% of gdp by 2020.

it will crowd out private investment and slow economic growth. chairman bernanke, i urge you to resist attempts to delay raising interest rates to offset these anti growth policies. regarding a financial service legislation, i am concerned about the fed's independence institutionalizing it too big to fail and protect -- perpetual icing freddie and fannie mac. diverting the fed's focus from the treasury to pay for the consumer protection bureau would set a dangerous precedent that would open the floodgates for other off budget federal spending. the perverse incentives arriving -- arising from the resumption of government banking has encouraged to excessive risk in

the housing market. instead of ending too big to fail, they would pass a permanent bailout fund for large financial institutions and it may exacerbate this problem. the senate bill does not provide for final resolution of a fannie mae and freddie mac, despite costing taxpayers $128 billion for no prospect for recovery. -- with no prospect for recovery. they are taking private capital and away from -- away from the private housing market. >> thank you. senator brown back? >> welcome. i would ask my full statement be put into its up the record as testimony. i look forward to your testimony today. we have a giant issues.

you are used a large problems. we continue to have them. the fiscal policy in the country is one that must be commented on. with its impact, its possibilities, problems down the road, i get very concerned about the real prospect of a government bubble. we have come through japan dot -- through the dot come bubble, and i am concerned about having a government of all. how can we east through this period? i am sure your staff at the fed is talking a great deal about this. one thing i would hope you would consider is the makeup of the fomc committee on monetary policy. a lot of us from all over the country were impacted by monetary policy. the federal reserve in new york has a permanent seat on that committee. is there reflective of the diversity of views across the

country? this is one of the issues i have been researching is sure that committee be broadened out on representation of federal bank chairman on the fomc. that is something that we will be presenting. several of us in the congress have joined onto a bill to press on china to allow its exchange rate to float. a number of us feel that they are artificially holding down the exchange rate and that has been a major impact on the u.s. economy. it does not reflect the current economic realities. it adds to the permanent feel of the imbalance between us and china on trade. one of the things that should happen when you have a trade imbalance is that currencies should be adjusted to reflect that under basic economic theory. yet, the chinese government does not allow that to happen. that has a big impact on the

prices of goods coming into this country. it has a big impact on our exports to china and other countries around china that are exporters as well. it seems a number of us -- to a number of us, if the chinese will not allow this flow to take place, we should be forcing them to, to the possibility of sanctions in trade policy. -- through the possibility of sanctions and trade policy. this is something that will possibly land on your doorstep as well. those are the big issues. i would hope and looking at interest rates down the road, it shows strength in our economy if we are able to start saying, we should allow interest rates to move up a little bit. that we think the recovery is moving forward. that we are getting to a stabilized point, that it would show some strength and resiliency if you allow interest

rates to start edging upward. that is something that is on your plate into have to decide, but looking at it as an outside observer, it seems like we might be at a point where that would be a wise move and one that would show strength. and it may be some of the fear of what may happen in the future. -- out of what may happen in the future. we want to get away from this government bubble and start to ease off the pressure on that. and chairman, thank you for the hearing. i look forward to your testimony, chairman bernanke per >> thank you very much. we expect senator schumer to join us. he has a conflict with his committee work. we will recognize him when he comes. i would like to introduce a chairman bernanke. dr. ben bernanke began a second term as chairman of the board of governors of the federal reserve

system on february 1, 2010. chairman bernanke also served as chairman of the federal open market committee. he are originally took office as chairman on february 1, 2006, when he also began a 14-year term as member of the board. chairman bernanke was chairman of the president's council of economic advisers from june, 2005, to january, 2006. prior to beginning public service, chairman bernanke was the class of 1926 professor of economics and public affairs at princeton university. he had been a professor of economics and public affairs since prince -- at princeton since 1985. welcome. we look forward to your testimony. >> thank you, madame chair. members of the committee, i am pleased to be here today to

discuss economic and financial developments. i would like to make a few remarks on the fiscal situation. supported by stimulus in the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to be done -- to have begun. an important impetus to the expansion was firm's success in working down the excess inventories that built up during a contraction which left companies more willing to expand production. the boost from the slower drawdown in inventories accounted for the majority of the sharp rise in gross domestic product in the fourth quarter of last year. gdp increase at 5.6%. with inventories better light and with support with fiscal policies diminishing in the coming year, further economic expansion depends on continued growth. the data suggest that growth in demand will be sufficient to promote a moderate economic

recovery. consumer spending continued to increase in the first two months of this year and has now risen at an annual rate of 2.5% since the middle of 2009. after slowing in january and february, sales of motor vehicles bounced back in march as manufacturers offered a new round of incentives -- sales bounced back. this should be aided by a gradual pickup in jobs and earnings and improvement in credit availability. in the business sector, capital spending on equipment has increased at a solid pace in the first quarter. u.s. manufacturing output which is benefiting from stronger export demand rose at an annual rate of 8% during the eight months ending in february. as i will discuss in a moment, financial conditions continue to strengthen, thus, reducing an important had wind for the economy. significant restraint in the

case of recover remains, including weakness in residential and nonresidential construction and the poor fiscal conditions of many state and local governments. sales in homes dropped back in january and february. new housing starts has changed little since the middle of last year. construction continues to construct up -- contract. pressures on state and local budgets, tempered by ongoing federal support, have led to declines in employment and construction spending by state and local governments. the labor market was hard hit by the recession. recently, we have seen encouraging signs that layoffs are slowing. manufacturing employment increased in march, and the number of temporary jobs, a precursor of more permanent employment, has been rising since last october. new claims for unemployment

insurance continue on a downward trend. if the recovery is moderate, this should begin amount of time will be required to restore the 8.5 million jobs lost in the last two years. i am concerned about the fact that in march, 44% of the unemployed have been without a job for six months or more. long periods of work with -- of time without work, reduce the prospects. younger workers may be adversely affected if a weak labor market prevents them from finding a first job or from gaining important work experience. on the inflation front, recent data showed a subdued rate in consumer prices. for the three months ended in february, prices for personal consumption rose at a rate -- despite a run up in energy prices. core inflation slowed to an annual rate of .5%. the moderation in inflation has

been broadly based. it has affected nearly everything and -- with the possible exception of crude oil. inspected inflation over the next five years to 10 years as measured -- expected inflation over the next five years to 10 years was too. 75% in march -- was 2.75% in march. financial markets improved considerably since may of last year. conditions in short-term credit markets have normalized. spreads into the commercial paper market have returned to near pre crisis levels. in light of these improvements, the fed has wound down of the liquidity programs it created to support financial markets during the crisis. the only remaining program, apart from the discount window, is the asset backed -- or tauf,

for loans backed by mortgage- backed securities. that facility is scheduled to close at the end of doing. the federal reserve's liquidity reserve made a contribution to the stabilization of the financial system and they did so at no cost to taxpayers and with no credit losses. the fed also completed its purchases of $1.75 trillion of federal agency mortgage-backed securities. purchases under these programs were face down gradually. the transition and markets has been relatively smooth. the fed's asset purchase program improves -- has reduced interest rate spreads, not only in the mortgage market but in longer-term debt markets as well. the financial condition of banking firms has strengthened recently last spring, the fed evaluated the nation's largest bank holding companies.

they did a stress test to ensure they would have sufficient capital. the release of the results reduced fear int h the markets. the fed and other bank regulators continue to encourage the banks to build up their capital, and sure they have adequate liquidity, improve their risk-management and restructure their employee compensation programs to better align risk and reward. despite the stronger financial positions, a bank's lending to households and businesses, continued to fall. the decline reflects sluggish loan demand. and many potential ball or is no longer quote -- borrowers no longer qualify for credit.

the fed has been working to ensure that our bank supervision does not inadvertently impede sound lending and slow the recovery. achieving the appropriate balance between necessary prudence and the need to continue making sound loans to borrowers is in the interest of banks and the economy as a whole. towards this end, in cooperation with regulators, we have issued policy statements to bankers emphasizing the importance of lending to creditworthy customers, working with troubled borrowers to restructure loans, managing commercial real a state exposure a proper way, and taking a careful approach to small business lending. we have training programs for federal reserve and state examiners. we have just completed a

training initiative their reach 1000 examiners. we are conducting a series of meetings -- we just completed a training initiatives that reached 1000 examiners. we have also stepped up our information gathering to better understand factors that could inhibit a blending. these efforts include a survey by examiners of bank practices in working out loans. the results will serve as a base line for us. we are also obtaining additional information on small business credit conditions. we assisted the national federation of independent business and developing a survey to assess barriers to credit access by small businesses. we are using our senior loan officer opinion survey to monitor changes in bank lending. in addition to the near-term

challenge of fostering improved economic opportunity, we face the difficult but essential task of achieving a longer-term sustainability. the federal budget deficit is on track to be nearly as high as the $1.40 trillion in debt in fiscal 2009. these extremely large deficits are the result of the effects of a weak economy on revenues, along with the necessary actions taken to counter the recession. an important part of the deficit appears to be structural. it is expected to remain, even after economic conditions return to normal. the administration and the congressional budget office projects the deficit will recede over the next two years as the temporary stimulus measures wind down the economic recovery leads to higher revenues. the annual deficit is expected to remain high through 2020, in the neighborhood of 5% of gdp. diocese at that level with lead the ratio of federal debt to the

g -- ratios at that level will lead the ratio of federal debt to gdp to rise considerably further. this baseline projection assumes most discretionary spending grows more slowly than nominal gdp. no expiring tax cuts are expended -- extended. under an alternative scenario, that drops those assumptions, the deficit at the end of 2220, would be 9% of gdp. -- aat the end of 2020. maintaining confidence requires that policymakers move decisively to set the federal budget on a trajectory toward sustainability. a credible plan for fiscal sustainability, in terms of lower long-term interest rates and increased consumer confidence appeared attention -- budgetary changes are less

likely to create hardship or dislocations when individuals affected are giving annual time to -- a fact if -- adequate time to adjust. thank you. i am pleased to take your questions. >> thank you very much. the fed's stance has been that it plans on, "maintaining an exceptionally low levels of the federal funds rate for an extended period of time." since there has been a great deal of speculation about the possibility that you might change her mind, let me ask you -- do you still hold that opinion? >> the market committee has stated that they anticipate very

low, extremely low rates will be needed for an extended period. they have emphasized that that forecast is conditional on three sets of conditions. one, high employment, second, subdued inflation trends, low inflation, and third stable inflation. the committee issued a statement at its last meeting reiterating their expectation about interest rates. >> you mentioned certain criteria. are there any other measures that the fed will be using to determine when to raise the federal funds rate? >> we will be looking at a broad range of economic indicators to assess where the economy is going. as was mentioned, our policies

take awhile to work. we have to look at the a look as well as the current situation. i tried to give you a sense of our outlook, for moderate economic recovery going forward. we will continue to look at inflation. and we will look at inflation expectations. we will also look at what is happening in financial markets. we want to be sure that financial and balances are not building. we have been trying to evaluate that, and to the best we can tell, we are not seeing imbalances. it is an issue. we need to be very cautious about that. we are paying attention to those issues. >> thank you. mr. brown back? >> thank you. mr. chairman, your last statement on fiscal policy, us

running a deficit of 5% of gdp but the more likely scenario is 9% of gdp, is the way i interpret you to say that. you do not make any -- if you do not make these adjustments, and yet the congress does on alternative minimum tax, that we were utterly waved them off. you said we are on track to be a 9% of gdp by 2020. are we on a sustainable path right now on our fiscal policy? >> let me say those numbers are based on cbo analysis. they assume that a &t fixes continue to be extended. expiring tax cuts are extended, and that non-military spending grows as fast as gdp. there are some assumptions about policy. it is fair to say that deficit, structural deficit, longer term deficits of anywhere between 4%

to 9% is not sustainable because it leads to add debt to gdp ratio which grows indefinitely. it is not stabilize. it leads to higher interest payments that feeds back into the deficit. it is important we consider how, not this year, because many economic conditions that are moving towards higher spending and lower revenues, but over the medium term, as we planned our fiscal policy, we need to find a sustainable path. that would require lower deficits then we are projecting. >> are we on track to have the same sort of problems as ireland, some other european countries presently? >> we are a much larger, diversified, advanced economy then greece and some of the other countries. at some point, we need to address those balances. we need to make sure we have a

sustainable fiscal program that will not lead to indefinite growth in the debt relative to gdp. >> when does the global financial community say the united states is not showing the seriousness about its fiscal policy, that it starts raising the cost of capital into the united states? >> senator, that is hard to know. at some point, the markets will make a judgment about not our economic capacity, but our political will to achieve longer-term sustainability. at that point, interest rates could go up. and that would be a negative for economic growth and recovery. we do not know when that point would be reached. for that reason, i think is important, even if we cannot balance the budget immediately, that we begin to think about how in the medium to longer-term we can put the federal budget on

unsustainable path. >> the markets could anticipate that happening now? >> it is certainly possible. >> we have a financial regulatory reform bill that came out of the senate banking committee. i want to ask you about a specific issue concerning the fed. my concern is the independent consumer financial protection bureau within the federal research, funded by the fed's ability to print money. do you have the views on this stand-alone agency being placed within the fed? >> i would like to understand better how it would work. my current understanding is that the agency would not be within the fed at any kind of -- in any kind of accountability cents. the agency would be reporting to the board or the chairman. it would be free standing -- it would not be reporting to the board or the chairman. it is true that the current

proposal would involve federal reserve financing, this agency. that does not make it any less cost to the taxpayer. it means there would be less revenue remitted from the federal reserve to the treasury. it is up to congress how you want to account for in finance the agency. but that particular way of doing it would lead to less revenue being remitted from the fed to the treasury because some would be used to support the agency. >> mr. chairman, i want to urge you to continue to speak out about the fiscal condition of the country. i think we are in a path that is not a good one at all. at any point in time, the market could start to react negatively to us on this. the sooner we start to react to that, and to show the ability to

address this, the better for the country. thank you very much. madam chairman? >> thank you, mr. chairman. i very much appreciate your being here. you have spoken about imbalances in the global economy and the role they play leading up -- they played leading up to the crisis. vice chairman colin it noted in a speech that deficit countries like the u.s. need to rely less on consumption and surplus countries like china must increase their domestic demand, if the global economy will thrive. this brings me to my first question. is clear to me and many experts agree that china's policy of keeping its currency pegged to the u.s. dollar helps perpetuate the imbalances in the global economy by subsidizing even more chinese exports at a cost of increasing american exports. it makes us too much of a

consumption country and china too much of an exporting country. this is a direct impact on american jobs. everyone i speak to admits that is the case. when lindsay graham and i started out on this five years ago, everyone was saying, please go away. we're not. so, if china appreciated its currency and moved to a free- floating exchange rate, it would do more for jobs here in the u.s. than any single stimulus program we could pass into law now senator stabenow and i have combined our laws -- our bills into one. the you agree that china's currency policy contributes to the imbalance and was one of the causes of the worldwide recession? >> yes, i broadly agree with that. most economists agree that their currency is undervalued and has been used to promote a more export-oriented economy.

i think it would be good for the chinese to allow more flexibility in their exchange rate. it will give them more autonomy in their monetary policies so they can address inflation. if they think they should combined -- it would be in their interest to combine a more flexible exchange rate with other efforts to increase d is the only factor, but it is a contributing factor. >> is it a large country in factor? >a 30%. let's assume that for the sake of argument. that is huge. i do not know what share of the imbalance is attributed to the exchange rate and how much to the other policies that lead to an imbalance of domestic versus foreign demand, but it is a contributing factor. >> ok. if it is in china's interest to

do it, why don't they do it? >> because, like us, they have political considerations and concerns. they are being conservative because they are concerned about the effects of any large changes, given what they perceive as a fragile state of the global economy. i think they are, like we do, they have political factors such as the influence of exporters court interested in maintaining -- who are interested in maintaining the status quo. they have intellectual and political rationales. >> don't we lose thousands of jobs because of this? don't billions of dollars flow out of the american economy that would not? >> i would like to qualify that by saying, by floating the exchange rate, they would also

need to create a stronger safety net to increase consumption and create a more domestic orientation towards spending. the exchange rate in the short term, by itself, would not have a major impact. >> why don't they move? use it -- you mentioned political forces. you are mee or one of us, and we hear of our manufacturers say they cannot compete. i have been to manufacturers and upstate new york that make great products. they are selling them in china. the chinese are copying their products, not letting them sell them in china anymore, but then going to sell them here. this firm is worried it will go out of business. i hear this story over and over again. it is a ceramic that deals with pollution in coal producing electricity plants. what you do if you are us? i have been talking about this for five years. talking gets you nowhere.

and we are ready to act. what do you suggest? what do i tell those workers who have lost their jobs? what do i tell good, new york manufacturers who are being put out of business by unfair competition? >> it is an important issue. we should continue to press for a more flexible exchange rate. >> don't you think we should take stronger action? it is produced virtually nothing. >> there has been some appreciation. >> that was made up for. we are now 30% of a balance. >> senator, i am not disagreeing, but the relationship of the united states and china is a complex one and covers many -- >> is about time we put jobs first, and we're not. i worry about the future of the country for that reason. let me go to one final question, madam chair.

this relates to consumer protection. one substantive and one theoretical. it is clear that nonbank mortgage companies and others outside the mainstream banking system played a major role in the financial crisis. the new consumer bureau proposed in the senate financial reform bill will only have enforcement power over a large, nonbanks. and that power would be prescribed through rulemaking process. i filed an amendment that would make the new consumer bureau able to enforce its rule against non-bank financial companies, large or small, paid a lenders, rented to own, debt collectors. these are some of the most rapacious people. under our bill, they are not regulated because they are small, non-financial. do you agree they should be regulated? >> i agree. there should be an even playing field between banks and nonbanks in terms of the rules they face.

the only complexity is that there are many states involved in regulating. some do a better job than others. working with the states would be an important part of doing this effectively. >> but to just exempt small, nonfinancial companies does not make any sense, right? final question. it is following up on senator brown back. the cfpa, why would you want it in the fede? it would seem to me that the whole mission of the fed is not consumer protection. it is safety and soundness. i think the fed has done a good job in many areas. it is done a poor job in consumer protection. what would you what it in any form and the fed? would it not be better to be an independent agency? the fed has lots of extra no events that affect safety and soundness. why would it be better to be independent? >> we have not asserted anything

on this issue. >> i understand. i am asking you, as the head of the fed, why would you want this? >> the one thing to cut or are you saying you don't? -- or are you saying you don't? >> i understand why people would be concerned given that we were late in taking important steps. i could understand why some advocates would want to have a purely independent agency that would have -- i understand that. it is sensible. >> i will cut you off. >> may i say that, while we had knowledge being laid on this is us -- these issues, we should receive credit for a much better performance in recent years. there are advantages -- the congress has been grappling with the issue of whether not the agency should completely be

separate from the safety and soundness regulatory function. >> if your number one goal or consumer protection, you would want independent. i am saying "if." >> i think we should be concerned about issues like credit availability. there may be benefits to having strong interaction between this agency and the bank regulators. >> thank you. thank you, madame chair. >> representative brady? >> thank you, madam chairman. i think china's currency is undervalued. there is a real question and concerns about the impact of raising prices on u.s. consumers. it is important to note that equally important is that we not allow that one issue to overshadow concerns we have with intellectual property rights, protection in china, subsidies and other issues such as protecting investment, and

chinese barriers to u.s. exports. especially in light of the view that this congress and white house is not pursued trade agreements, by ratifying an agreement with panama, colombia, and south korea. you reference to the commercial real a state market. i am convinced -- the commercial real estate market. i am convinced there is not a difference in growth markets and contracting regions. there is not a concern that community and regional banks have picked up demand left on met by the fall of the cmbs region. the inflexibility of bank examiners -- in the real world, among banks today, there is a clear statement -- commercial

real-estate loans are problem loans. the sooner you get them off your books, the better for us. as a result, is we will -- we will excess -- exacerbate the problem. i appreciate the effort you are making. you had representatives at the roundtable this week with some of our most sound banks. we appreciate the fact you are listening to those concerns. two thoughts -- independence and monetizing the debt. will you, it is reasonable to expect the administration to press freezing money in the hope of artificially lifting out of unemployment in the short run, will you resist pressure to monocyte -- monetize the debt is rising borrowing costs intensify our federal budget problems? >> congressman, first, absolutely we will.

our holdings of treasury securities are about the same as they were before the crisis. we have not monetize the debt. and we will not. we will continue to make sure the price stability is essential to our objectives. let me assure you on that point. let me add parenthetically that, given the structure of our debt, it would not help reduce the debt. but given that so many of our obligations are short term or indexed or social security or medical obligations, it would not have a substantial effect, even if there were willingness to do that, which there is not. there is no alternative but to try to find real solutions. inflation is not an answer, for economic reasons and just because it would not affect the balance very much. >> i noticed the projections on

treasury note yields for the next three years is much lower than what is already occurring today. i think that pressure will increase, not just from the white house but from members of congress. i worry about the dependence of the fed -- we are aware of the senate bill dealing with -- making major changes to the federal reserve, such as making the bank of new york a presidential appointee, removing voting rights and transferring your jurisdiction over certain banks. you have any concerns about those? >> yes, i do not think that is the right way to go. you want to maintain accountability through the board of governors which oversees the system, and that is the appropriate way for us to be accountable to the congress, which we will be. we want to be transparent to the congress on all financial matters, but we do need to maintain independence in policy decisions. >> as you feel like some of the

changes such as voting rights, do you think -- you have concerns they could weaken the regional reserve banks and undermine the independence of the fed in dealing with monetary policy? >> i think our fomc structure, created in the late 1930's, has worked pretty well. it has a good combination of presidentially appointed, senate confirmed governors in washington. reserve bank presidents around the country, as well. there are 19 people on the committee, seven governors, and 12 reserve bank governors. everyone's views are heard. notwithstanding the voting arrangements, it is a consensus decision. we did both the washington perspective and the washington accountability, but we also get very important information and input from around the country. you mentioned this earlier, congressman, that one of the sources of that information is

our oversight of state member banks, which are very well informed about their local economies. that is also a concern we have, that we would lose that oversight. so, independence is very important. i think the main issue is to make sure that we are allowed to take action in pursuit of our mandate without intervention by the congress or the administration. >> thank you, mr. chairman. >> congresswoman sanchez? >> thank you, madame chair. mr. chairman, i think that i am having the same problem all lot of other people are. and that is we continue to say that businesses, small businesses in particular, create the jobs. and we know that it employment lags behind when the economy

is turning around. let's say for a minute, that maybe we are turning around. we are breakeven. we might be growing a little bit. we may not. we are not going to see employment up for a while. everybody is coming to that realization. here is the problem i have. most of the small businesses that were in business who are one of those businesses that is in business because of the good times, and there is money flowing and lots of excess fat, and people are getting into business for that reason, those have gone. now you have businesses that have been all around for awhile, a lot of them that took some of the precautions -- they are financially pretty sound. they cannot get the money. they cannot get working capital.

they just cannot get loans to buy inventory or to upgrade the technology they need. banks are not lending still. we're almost a 0% interest rate. money is pretty cheap, but even those credits that before were good credits and today are still pretty good credits, cannot get to the money. so, what do you suggest/ ? what are we missing? what do we need to do? it does not seem like the fda administration -- there is so much paperwork to getting along. the caveat -- to getting a loan. it is a long process. businesses are saying, we have made it through. we are still around.

, but we cannot get the capital to move forward. i've seen a lot of businesses like that. they have no equity in their homes where they used to borrow against their own personal wealth. what do you suggest? what can the congress do in conjunction to get that moving? >> let me first agree with your premise that small businesses create a lot of jobs, particularly in economic recoveries. to the extent they cannot take credit, that will slow or prevent expansion. it is important. that is a top priority for the fed. i do not want to take too much time, but the issues are complicated. there are some firms that had gotten easy credit earlier and now they cannot qualify. there are some firms that are not demanding credit. if you look at the surveys, their number one problem is lack of demand or customers.

the surveys also suggested that some firms are able to get credit, though not all. it is complicated. one creditworthy small business that cannot get credit, that is too many. we want to fix that. we will approach this from a long list of policy actions, including strengthening the banking system, including our interest rate policies as you mentioned. i would mention specifically in our supervisory role, we have issued strong guidance to banks and examiners that small businesses are to be evaluated based on their ability to pay, not based on their industry or their geography. and there we encourage, for example, second round reviews if the first one does not pass.

we are explicit that decline in the value of the collateral of the whole or the store is not in itself a reason to mark down or deny the loan. we have been working hard to get feedback. one of the problems we get is that bankers tell their congressmen, we are having a problem, but they will not tell us. we are trying to make sure we get as much feedback as possible we have been having meetings on around the country in different districts at the federal -- at the reserve banks to understand the barriers. what can we specifically do? we are working hard to improve that situation. credit is a somewhat tighter and will be tighter. that is probably unavoidable. we want to make sure creditworthy borrowers are able to access credit. we are working very hard on that. in terms of what congress can do, there are proposals.

the administration has a proposal to use leftover tarp funds to incentivize small banks. small banks are more likely to be lenders to small businesses. >> they are closest to them. >> they have longer-term relationships. we have been doing a lot to increase our date information about those loans. it would take another lengthy discussion to talk about the pros and cons -- the pros and cons of the proposal, but there may be ways to incentivize or support through the sba or directly small banks that no those customers to increase their lending. >> mr. chairman, i would like to discuss with you or your people how we might get to that point. we have information from our bankers. maybe they are not telling you. maybe we need to bring them in and talked to you. it seems like there is a disconnect. we need to get beyond this

barrier to really get, what seemed to me -- i used to be in the financial industry, pretty creditworthy businesses when they talk to me and i look at their balance sheets, and yet come up it is like the money is right here, but they cannot get to it. >> i encourage anyone all around the table there who would like to bring in folks, we can work out ways to have those conversations. it would be helpful to us. >> thank you, chairman. appreciate it. >> representative paul? >> welcome chairman bernanke. i would like to make a brief comment. that i want ask a question about the imf. i comment about the answer about monetizing debt. because your balance sheet remains stable with treasury bills, it does not mean the fed cannot monetize debt. you mention in your statement about mortgage-backed securities and how you got that and agency

debt. that is over $1.30 trillion. were did you get the money? you created this money. -- where did you get this money? the banking system can buy treasury bills. they can borrow money at 0%. that is why they are making a lot of money, because they can buy other debt and make more. it looks magic, except for the people who are losing their mortgages and losing their houses right now. one other quick question is, the 1000 examiners that you are training, or any of those new or are they already on the payroll? >> on the payroll. they include federal reserve and state examiners. >> my comment is probably 10,000 will not do much good, because it is not a lack of examination, if you do not deal with the problem. the problem comes from a monetary policy of low interest rates. as long as low interest rates rigs the market in view is that

information to the investor, all the examiners in the world cannot compensate for this. this whole idea that capital can come from a printing press rather than savings, i still have a terrible time trying to understand how an economy can thrive on that, because it rejects every notion of free market capitalism. the question i have on the imf is this week the imf has announced they are going to open up a new arrangement to borrow or expand, there is a commitment of $50 billion. it will go up to $560 billion. it coincides with the bailout of greece. the irony of this promise is that in this new arrangement, this increase, greece will put $2.5 billion in there. only a fiat monetary system worldwide could come up and help brees help bail of greece. -- greece to bail out greece,

and bailout other countries. we will go from a 50 -- from 10 to 105. that's $105 billion we will commit to bailing out the various countries of the world. this does two things. i want to get your comments. one, why doesn't coincide with greece? what are they anticipating? do we have a lot more trouble? when it comes to that time where we have to make this commitment, who pays for this? where does it come from? but does it all come out of the printing press once again? are we expected to bail out the world? are you in favor of this increase in the imf funding and in our traditional commitment? >> -- additional committment? >> one of the agreements that

the g-20 leaders came up is a mutual agreement to put more money into the imf as a way of addressing the financial crisis all around the world. that is why it happened. the federal reserve was not involved. it was before greece. if money is put out to any country, it will be done, first of all, with specific approval from the executive board, which includes the u.s. in of the opposition. -- in a veto position, with conditionality. if the g-20 leadership agreed that this is the way to provide credit to avoid fiscal or exchange rate crises in countries around the world -- >> do you think this was a good idea? >> in general, having the imf

available to avoid crises is a good idea. >> where will the money come from? this is our problem. we are bankrupt, too. along those lines, do you feel like, you go along with this commitment, what do you do when the state gets under the gun? like california and others, they are approaching a state that greece is in. we cannot turn down california. if we can bail out all these banks and they get off the hook and now they are making billions in their executive officers are cleaning up, do you think we would ever turn down california or any other state that gets in the same situation? >> that is congress's decision. >> you have bailed out a lot of people from the imf. you have the capability of buying up some dead and doing all these things. we cannot even audit you to find out what to do -- you have the

capability of buying up some debt. >> and a transaction we make, we are happy to provide that information. the imf is a separate institution which is american executives -- >> were with the money come from? >> it is alone. >> -- it'weekss a -- it's a loan. >> i yield back. >> thank you. congressman snyder. >> thank you, madame chair. thank you, mr. bernanke for being here. i do not often agree with things that my friend from texas says, but at the beginning of the hearing he said, you quelled the panic at the end of 2009. that could be tombstone material. tell your heirs. one page four of your statement, you said the financial conditions of banking firms has

strengthened markedly. what i want to ask about is the more amorphous of ethics in banking. what concerns me is this -- if i want to buy a car, i will study who puts out the best car. the manufacturers and dealers stand beside their product cured if i'm looking for someone to paint my house, i ask around of who does the best job. i get references. the providers of products and services they work to put out a product that satisfies me. it seems to me we have a situation with major players in the financial-services industry that they work for ways for their customers to be unsuccessful. what do i mean? the one we are most familiar with is bank of america.

i am a customer, and they are probably tired of me talking about them. there is a computer program. this happened to me. i did not go into late fees. i looked at it on line. the bank is closed on good friday. saturday, sunday, monday. all the debit card purchases i did to the weekend, regardless, are processed for the largest first purpo. and we all know what that is about. the goal is to drive people on knowingly into overdraft fees. they want me to fail as a come -- as a customer. we have a history to the last several years that led into the

problems of loans that should never have been made. they made them and sell them. they can walk away from their mistakes and then they do not care. you have done a great job of quelling the panic. the history is going to treat you well. my question is on the more vague -- what about the morality of the financial-services industry? i ask this question and they say they are responsible to shareholders. so are my car dealers. what about the responsibility to customers, were you what your customers to succeed. where does that come into these discussions? >> it is incredibly important. the heart of any good business is ethical treatment of your employees, customers, and so on. my experience is that, among bankers like any other group of people, there are some who are

very ethical and some who are not. in the case of those who are not, we need to make sure there is adequate protections, like a better business bureau. in the case of over--- overdraft protection, the fed put out rules concerning debit card transactions. you have to opt in -- in order to receive an overdraft fees. >> you did not do anything about this computer program? >> we did not. in that particular rule making, we did not, because it was part of the electronic funds transfer act -- they did not have a place to put that in. we are looking at those practices and we will try to address them. they are not completely straightforward, because there are demands for the big one for us because people want to make sure their mortgage gets paid before the coffee gets paid. >> i heard that many a time.

>> we are looking at that very seriously. we will try to come up with a solution that will address the problem you are talking about. >> because you know, i have had the personal experience of going in and checking the balance before i get cash out on saturday. and it says, i have $130, and i take out $100, and it pushed me into an overdraft. >> most people did not to on- line. most people to not fall would like i do because i am so intrigued by what they're doing. there are preying on people. i think it is very difficult to deal with the issues the chairman wants to do with and what was being talked about. if there is a morality in the industry that says ultimately, our goal is to get money from people, not necessarily to see them have a successful real-

estate venture or home loan. i was -- i did not know how we get it that. thank you. >> thank you. welcome to the committee. dr. paul made an observation that bears repeating. it was the concept that banks that got into trouble were able to get money at the very low interest rate and now turn around and loaded back to you at a much higher interest rate and there is no reason for them to make loans to the entrepreneur or the small business person. they are making -- de making money working off the system that the fed has provided for them. i do urge you to look at that.

if it makes them appear noncredit with it, this is a real problem. i heard from people all of the district saying this is going on. to the extent that you offered help and that, i intend to take you up on that offer. i will have several of these individuals visiting in washington next week and i would like for them to be able to tell somebody at the fed just what they told me last week and part of it is marked to market and part of it is very slow rate of getting appraisals back and the appraisals are so slow in coming back that they do not reflect rapidly changing market conditions and people in the real world cannot function in the system that we created for them. rep sanchez had some very good point and abel take you up on that because i think it needs --

there needs to be more hands-on from the fed about what the actual effects of the monetary policy that you are pursuing. you also made a comment that the fed is open. dr. paul talked a lot about auditing the fed and knowing what is in there. is there a way for me to know what the fed holds as far as real holdings in my congressional district? you hear stories about the fed owning a shopping center in oklahoma city. i cannot know you were into it. what do you own in my congressional district? can i get that information? >> the answer is yes. the only kind of strange assets like that you are referred to, basically what we own our treasuries and the liabilities of fannie and freddie. that is what we own.

we do have some assets that were involved in the bailouts of bear stearns and aig to still on our balance sheets. we did not have an option at the time, but we have released all information about that group of assets including information about who the loan is to and so on. you can find that out. >> i appreciate that. i will have somebody from my office follow up on that. in your response to senator brown back paws question about concern about the structural tax provisions that are due to expire and the presumptions made, here is a report from the joint committee on taxation. this 50 pages of tax cuts that are expiring and the next 10 years, some of them are quite

obscure and it appears some of them should expire. have people at the fed to come through this and really put a pencil to paper about which of these that congress lets kick in? i did not know what we are going to do about that or how we will pay for that but we always do something. i expect you are correct in that assumption. has somebody at the fed gone through this entire report, looking at the expiring tax provisions over the next 10 years so we have some idea of what we are dealing with? >> we are using the publicly available projections and on the tax side, and i am not making any policy or advocating any, i am telling you how these projections are done, that particular projection is one

where all the expiring taxes -- tax cuts are extended and quantitatively, the two biggest are the 2001 and 2003 tax cuts and to the amt. there are others that are often extended. >> all that directly affects the policy that we all talked about that we should be concentrating on with job creation and job growth. one final thought to leave you with. i heard from so many people over the brick and you referenced this in your testimony, the young person getting out of college with terrible difficulties finding a job and that may set a tone for their productive years because of this recession and then you have the person my age, what i'd like to refer to as the late bloomer, who is having difficulty.

those jobs do not exist and that is where we have to look at the beginning and the latter end of the employment years because they are both in serious trouble. >> the gentleman's time has expired. >> i would agree with that. bowfins -- both ends are having difficulty and there are different ways to address those different parts. it is clear that long-term unemployment has a long-term implication for the person's ability to earn a living. >> thank you. >> thank you. chairman bernanke, thank you. you have a very interesting job and it is fascinating because of the set of circumstances that our existing currently that you have to deal with. among all the things you have to deal with, the organization of the monetary policy of this country is a critical issue that has to be engaged in.

one of the things that we are confronting is this huge national debt. it is important -- the unjustified invasion into iraq and what continues to be spent there which will hopefully be ended shortly. the tax reduction for the wealthiest people in this country which has not brought about the greatest concentration of wealth in the hands of 1% son of the population that we have seen since 1929 and the dramatic drop in the income of virtually everybody else across the country, almost all of the working people. and other things like the inability to negotiate the price of prescription drugs in the context of medicare which is jeopardized and the future of medicare. all of these things are critically important. i hope that you will make a

contribution to our working with them. the tax cut expires at the end of this year. all of these other things that we had to deal with our important and we have to understand what they are about. the engagement of commercial banks now continues in spite of the fact that the economy is beginning to get a little bit better. their ways in which this is being attempted to be addressed. one way is the context of the financial reform bill of german dodd. one thing he is trying to do is introduce the elements of the volcker rule to deal essentially with what happened with the elimination of the glass- steagall act. the interaction of commercial and investment banks. that aspect of this legislation is not solid by any dates.

there is a study that will make a determination as to whether the provisions of the volcker rule, which are only partly effective in the context of dealing with the interaction and manipulation of investments, so what do you expect will come out of that study with regard to the inclusion of the volcker rule and if it comes out positively, with the inclusion of that, how effective will be built be? >> first, we do not want banks or investment banks taking speculative positions with the u.s. safety net behind it. clearly, we have to draw that line. inevitably, what the study will fund is drawing a sharp line is not easy because various activities or making markets

that involve temporary proprietary holdings and so on. it might not be quite as easy to say this is proprietary and this is not. we need to have a set of rules or criteria that helps us distinguish which is up -- which is applicable and which is not. that will be the big challenge. we have to say a clear decision. >> that opposition will come as a result of the huge amount of income that has generated -- that has been generated and the situation. this is something that has to pay brought about -- has to be brought about effectively. but we can bring back something like the glass-steagall act and separate those banks and eliminate the conflict of this type of investment. it would seem to me that that would be something that would be very effective.

back in 1933 when it was put into place, it had a very effective situation on the context of the great depression. there is a great resistance to doing that and that resistance is coming from a handful of people who were effectively engaged in this kind of manipulation of investments. i wonder if you can tell us a bit more about what you think should happen and if there is any way in which your operation and this congress can be engaged more effectively in about a more open and honest way in which the banking system is engaged and to the elimination of this manipulation that has been one of the major causes of this the person -- of this deep recession. >> i do not think glass-steagall by itself would solve our problems because we had commercial banks losing money on a regular loans and investment banks losing money on speculative securities trades.

separating that would not have saved lehman brothers nor protected in number of the banks. >> some of that elimination had occurred prior to the elimination of that complete legislation in 1999. there were interactions in the glass-steagall act and interventions and some manipulation of that, all of which brought about some of the declines. >> i do not think it is just the separation. i am trying to say that we need to take important steps that would include stronger capital requirements to make sure that the institutions who are taking risks are bearing those risks themselves. it would include making sure every large financial firm has a strong and consolidated supervisor and we did not have the gaps we had where some firms can sneak by without being overseen. it is very important to have this resolution machine to wind

up a failing firm which means that the creditors and shareholders would bear the costs which creates another set of incentives to keep banks and other financial firms away from potentially risky investments. but there are a bunch of things that we can do. i do not think glass-steagall alone will solve this complex problem. >> thank you. thank you for being here. i was just in my state last week and we have a 7.3% unemployment rate which is a bit better than the national average. despite the struggles, there are glimmers of hope which i know you see with your number crunching. we have 2500 employees and they are hiring. more at one company. we have some glimmers of hope. what i wanted to talk to you

about where i see a potential limitation on our recovery is very -- is the [inaudible] . a lot of us have held our votes on that. i was very distraught that some of our colleagues changed their votes or did not do it and the president went on. did you talk about the importance of getting something done on the debt for the long term and for the economy and what something like this that commission, if we can get some recommendations, that we can have an up and down vote on is so important? >> it has direct implications for the health of our economy and maybe not just in the long run. in the long run, if we have higher interest rates, it will reduce investment. we will have to borrow more from abroad which also means a heavier burden on our children

to pay back. those are the classic problems. worse than that is the markets right now are signaling a lot of confidence that our political system will deliver a sustainable trajectory of fiscal policy going into the next few decades. it is very encouraging that we can borrow at 30 years at 4% or 4% plus. they believe we will do it. >> if we do not? >> if we do not or to a strong -- if we do not, it would be something we have to worry about on wednesday. it could happen that the markets would lose confidence. i want to draw a strong distinction between the fiscal position and that of some other countries but we have seen from the world a number of countries that have come under pressure

because of loss of confidence in their resolve or ability to address -- to address these problems. it does not mean we have to solve these problems tomorrow but we have to have a plan and a credible process to show that we can manage these difficult problems. they are very difficult. you have all of my sympathy because they are extremely difficult politically and intellectually to solve. how to do it, i think the commission is very good. >> it is. this idea that we just put our heads in the sand is not going to work in the long term and i hope my colleagues take seriously, on both sides of the aisle, the recommendations of this commission. my second focus is small business lending. i have been working with mark

warner on that proposal. the second thing is this proposal by chairman dodd to look at taking back some of the power of the federal reserve. we found it to be helpful. what do you think of that proposal and the other concern i have heard from the small community banks is the proposal to limit your supervision to banks that have more than $50 billion in assets. our community banks are not big fans of that proposal and out of like to hear your opinion of these proposals to consolidate the fed away from regionals and to take the community banks from under the federal reserve. >> we are very concerned and understand we need to play a role as a part of a process of keeping our financial systems stable. it would be a very bad outcome to lose connection with the small and medium-sized banks we currently supervised.

. it provides us a great deal of information about what is happening out there in a country about small business loans and the local economy. it gives us a perspective on the whole financial system. we do not just want to look at wall street. we need to look at the whole economy not only for monetary policy purposes but for stability purposes. small banks can be a part of the crisis, too, as they were during the great depression or 1982 or many other examples. we want to have that connection with the economy [inaudible] [no audio] so that the fed has the ability

to supervise and have a strong connection with small and medium-sized banks as well as those large banks. >> the idea of the regional federal reserve are our ears to the ground. they are with the supervisors' reside and they do the operational work and they have those regional connections. washington is were the policy is set and the overall accountability flows from. we rely heavily on those eyes and ears around the country to get that the back. >> excellent. thank you. >> senator casey. >> thank you. thank you for being here. we appreciate your testimony and public service. i know it is not easy. i wanted to explore two general areas, and jobs and currency.

first of all, with regard to some of the data that is out there as well as your testimony, there is a good bit to be positive about. i have said a number of times that the actions that were taken in the fall of 2008 when you came to us and presented the gravity of the financial situation plus the recovery bill in 2009 and additional and more recent job creation bills had a positive impact and even more so the next couple of months. we still face a situation in our state where even though if you look at the rate, we are at 8.9% unemployment which is lower than several big states but it still means 577,000 people out of work. if it is not a record, it is close to a record. then i looked at individual

regions. we have had this unfortunate confluence of misery in places as large as philadelphia with the unemployment rate has been at 10% for a long time and it bumped up to over 11%. next to philadelphia, you have numbers higher than that. a very small -- in very small rural counties, you can have on deployment of 30% with the loss of one company. in the midst of all that misery, we hear that small businesses have trouble accessing credit. the dichotomy between that difficulty and the headline in the new york times saying j.p. morgan is upbeat on the economy as it posts profit. for a lot of people out there,

that are at odds with were there are. one is up beat and the other is profit. as a long predicate, i know that they highlight concerns about fiscal matters of the deficit. you said and i quote that it is a fact that it shows sluggish loan demand in many borrowers cannot qualify. that is the diagnosis of the problem. what steps to we take in the next short months or year that will have a positive impact on the job climate as it relates in a very particular way to small business. >> the small business problem is

very difficult because we want small business to have credit but we want to make good loans. we do not want to go back to the weak lending standards before the crisis. as i discussed earlier today, it is a very high priority of the federal reserve to work with banks and the examiners to make sure that there is an appropriate balance and that loans are appropriately under written and as they have been sufficiently -- and they are likely to be paid. we certainly do not want a modern equivalent of redlining. we do not want to say the entire category of small business is not to receive credit or nobody in the state of florida is to receive credit because of the general category.

part of this is the cooperation between the banks and the examiners working together and understanding each other to make sure that every loan is evaluated on its own 2 feet. you could very well have a situation where the value of their property is going down but the company has a stable business and has been able to pay for many years in which case we have provided guidance to our examiners and training and asking for feedback in which case that loan should be made or at least be given a very careful assessment. and this is something that goes back to a point that was raised earlier is the fed's involvement with the banking system. we are bank examiners. we are obviously very concerned

about making sure the banks are safe and sound and making good loans. on the other hand, we are also very concerned about the overall health of our financial system and our economy. therefore, perhaps more than others, we are focusing on getting that balance right. we want to make sure that could loans get made. i have talked about some of our programs and our information gathering. we have had meetings around the country and conferences and we are collecting extra data we did not collect before about small business lending. we put extra questions into the survey to get more insight and as i said earlier, i invite direct feedback from members of congress and their constituents and how we can better meet this need. from congress's point of view, it is a difficult problem.

it will provide additional capital incent banks to make loans. that is one direction that is possible. >> thank you. >> chairman bernanke, you testified earlier that in reform , we should have stronger capital requirements. many believe we should limit leverage of some of these financial institutions. 35%, 60%, or some of them. do you believe the leverage should be limited and if so, do we have a specific member put into the legislation? >> we have a risk-weighted capital ratio which is not a

straight leverage ratio, it is amount of capital we have to hold against assets. this makes sense. the riskier the asset, the more capital you want to hold. we are working very actively with other regulators around the world to strengthen the capital requirements. we have already made proposals to do that and we will get assessments from the banks to see how big of an impact that will have. it is our intention to move forward with more strict capital requirements. but the leverage ratio is kind of a backstop or fail safe. it is a simple ratio. it is a ratio of capital against total assets without making any distinction between treasury, loans to small businesses, and others. the u.s. has long had a leverage ratio as a backstop to our capital. one of the interesting things that appears to be coming out

of the international negotiations is that the u.s. leverage ratio, which was never used a broad, looks like it will be adopted by other countries which is good for us because it will create a more even playing field and greater safety in the global banking system. the leverage ratio is part of the negotiations we are having internationally and there are proposals on the table. we have not yet gone to the whole process of doing the quantitative analysis in figuring out the right number. i cannot tell you what the final number will be but we are certainly looking to make the leverage ratio part of the more conservative approach to make sure banks have enough capital to absorb even in the process. >> i think you should reach for conclusion by the time we pass this bill. we should have something definite.

i would like to ask your assessment on international banking. your comments on what has been happening in greece. testified the fed will look into credit default swaps on sovereign debt. can you tell us what you found? >> we looked at the goldman sex arrangement with greece. -- goldman sackks arrangement wh greece. there was an agreement between them which by using exchange rates that were different from the market rates had the effect of modestly changing the reported that been ratios that the country report -- that the country reported to their statistical agency.

goldman sold this position into a great bank in thousand five. i mentioned the effects of distorting the numbers but those were relatively modest, about one percentage point. the debt to gdp ratio changed to 100%. it was not a large effect but there was in effect. before that happened, this was before the federal reserve was supervising goldman sacks and before the enron episode, following which the fed and other supervisors strengthened our rules against the arrangements which are basically and tended to have accounting and tax to affect. we have discussed the issue and they have a much more elaborate

procedure to evaluate such deals to make sure that there are not being motivated by accounting and other appearance issues. we believe in that situation that they divested that position in 2005. on the credit default swaps, we have not found large positions in u.s. banks but we have not addressed the question specifically of using cds to manipulate pricing which would be evil and inappropriate. that would be more and sec issue. exposures of u.s. banks through direct holdings to european governments is relatively

limited. >> are you satisfied with the solution europe has reached? do you see the problems plaguing greece spilling over into other countries or having an impact on the u.s.? >> it is a work in progress. they have made a good bit of progress but it is politically difficult. on one hand, the europeans do not want to assist greece unless they are persuaded that the greeks have made a good-faith effort on their own to reduce their deficit and improve their own fiscal position. at the same time, the europeans themselves have to agree but how they're going to share the burden and how they're want to set up the arrangements. but there is a broad understanding that it is important to come to a solution and they have made a good bit of progress. i think there will be further discussions going forward. the u.s. is not directly

involved in the negotiations but we have been informed that they have made good progress and they are quite confident that a solution will be forthcoming. >> thank you. mr. brady. >> thank you, madam chairman. i do believe in the issue of small business credit. it is not an issue, it is over correction on behalf of the regulators and banks. i am not a banker nor an expert but especially in large real- estate, even though they are told these are guidelines, banks know if they go over a time over the concentration threshold's, they will enjoy it a special visitation from their friendly banking but the -- banking regulator setting aside capital reserves for commercial real estate is really creating

the problems of creditworthy projects inhibiting growth and creating a much more severe commercial real estate crisis where we are pretty know there are real challenges any ways. i do appreciate your focus on that area are among all the other things you are doing. it is critical that the fed be listening and injecting common- sense wherever possible and that process. one question about the trade-off between inflation and unemployment hall in a question about the balance sheet. we have had people testify and for the of congress, one advocated raising the inflation target to 4%. the argument was higher inflation would alleviate the unemployment and produce more

nominal interest rates in the future. how do you respond to the argument that unemployment is so dire that we should inflate our way to more rapid recovery? >> his argument is at a higher inflation rate, nominal interest rates would also be higher on average and that would give more space to cut during a recession and perhaps more ability to create and the test. that is not a logical arguments but it has substantial risks. the federal reserve over a long period of time have established a great deal of credibility in terms of keeping inflation low around 2%. you can see that an inflation index treasury debt which people expect about 2.2% over that 10 year period.

if we were to go to 4%, we would risk losing a lot of that hard- won credibility because people would say if we go to 4%, 1 not 6%, 1 not 8%. it would be difficult to tie down expectations at 4%, beyond which, in the longer term, low inflation is good for the economy and four% is getting up there a bit and would probably have detrimental effects on the continent of our markets. i understand the market but that is not a direction we are interested in pursuing. we will keep our inflationary objectives about where they are, to% is about up corporate given biases and measurements of inflation and having a little bit of space between the average inflation rate and the risk of having deflationary or falling prices. that is where we are going to

be. >> recent the issue of expectations. there are rational expectations that businesses will see higher tax rates and more regulation. i think that has an impact. individuals, as well. somebody has to pay that debt back. that is all a part of the psyche and confidence of businesses and consumers. one of those areas of uncertainty is the extraordinary balance sheet expansion of the fed. recently, testifying for the house financial services committee, one professor stressed how important it would be for the fed to provide an exit strategy with an explicit decision rules such as to allay fears of future inflation, rusher congress that the fed will not continue to exceed the traditional purview of monetary policy. are you prepared to lay out a

definitive road map to normalization? >> yes, to the extent that we have determined all of the details. we have to see how things evolved. i have recently testified and released separately document which is laid out our proposed exit strategy and we are developing the tools to do that. this has been an ongoing campaign on my part and the fed's part to bring back to last summer when i published an op ed that laid out the strategy. my impression is that early on, there was a lot of concern and the market about this large balance sheet and the large amount of reserves. on and not saying the concerns have completely evaporated, we have provided a lot of information about our exit strategy and my sense is that it has had a good effect. for the most part, there is a

lot of confidence in financial markets that we do know how to exit effectively and we will exit effectively and do so in a way that does not lead to any increase in inflation. one piece of evidence is the long term break-evens in the bond market. i do not think we can give quantitative rules at this market exactly at this moment but we have the tools we need to reduce the balance sheet over time and to raise interest rates when it becomes necessary to do so to avoid inflation. >> thank you. >> thank you. i deeply appreciate the position that you have and how critically important it is, especially right now. frankly, the relatively candid response that you have given which are revolutionary in many ways.

i want to ask you a question about the housing market. the circumstances we are dealing with their, this economy is still a very rough. it is not secured by any means. there are a whole host of things that need to be done and attention needs to be continued to be paid to it. one aspect is the housing market. as you mentioned, the federal reserve entered leadership has worked with the illustration to create an environment to encourage responsible home ownership. that was something that was very positive and it stepped in a very positive way to deal with this condition. the conditions are about to change and one way in which it a change is the fact that in march, the federal government stopped purchasing mortgage- backed securities which had kept interest rates low and helped stabilize the housing market. can you give us the justification for that and what

you think the aspects of that are going to be? >> to go back to the comments from mr. brady, we have already expanded our balance sheet quite considerably. we did not want to create such a large balance sheet of wood great concern about our ability to normalize policy at the appropriate time. we were concerned about the potential impact of the cessation of mbs purchases on security mortgages. we reduced our purchases gradually put weed tapered off our purchases and i am pleased to say that we see very little effect on mortgage rates. there has been essentially no effect on mortgage-backed security yields. i do not anticipate any significant impact on mortgage rates. >> for how long?

there have been a number of announcements just over the course of the last week or so about the interest rates for mortgages going up and specific -- >> it has gone the other direction. but the rate is pretty close to zero. we will continue to watch that. there is nothing that says if the economy weakens and the issue is we cannot -- and there is nothing that says we cannot resume those purchases. at this point, the main effect is we are still holding $1.40 trillion in bet and that amount being taken off the market seems to have the ongoing effect of keeping mortgage rates pretty low. >> no question about it. it has had a positive effect but my concern is that now that that

positive effect is being eliminated and we already see issues that indicate that these interest rates are going to go up. as they go up, that will reduce the housing market in the context of the ongoing economic circumstances that most working -- most working people are having to confront. i am deeply concerned about this and appreciate your considering it and maybe making some changes if it seems to be necessary. there are other aspects of the housing market, also, that are about to cause some serious problems. among those, the first-time home buyer tax credit is due to expire april 40. the fha has recently tightened its restrictions on loan eligibility. the housing market is not yet stabilized. i wonder what you think about

all three of these issues that are essentially being eliminated which were put into play to deal with the economic circumstances which caused a positive effect on the housing market but now those effects are being eliminated and it seems to me that the situation is likely to get progressively worse and maybe rapidly worse. >> the number of starts of housing has been very low and unfortunately, all of the efforts, including low mortgage rates, have not rejuvenated new construction very much. that remains a concern. you did mention one other important aspect which is the foreclosure mitigation issues. one of the most important aspects is not just the amount of construction but what happens to housing prices. if pricing stabilizes, that will help consumer confidence because

people feel the value of their home is not falling and it will help reduce mortgage delinquencies. one concern we have is foreclosures will continue to put houses on the market and cause house prices to fall further. and we are watching that very carefully and are hopeful that some of the programs that the government has put into place will help mitigate that exposure rate. >> i am deeply concerned about the effective elimination of these three issues. the elimination of these three issues prior to the moment when the housing market is improving significantly. i think is this is -- >> that is an excellent point and the gentleman's time has expired. we look forward to the chairman's response. >> i agree. it has been a big part of this whole cycle.

we have to watch that sector very carefully. not just construction but prices and foreclosures. those are all big issues for people. >> we were talking about jobs when my time ran out before. it seems like some of the things we have done recently, health care bill being a big one, i have heard from several people back home about a couple who had an assortment of small businesses who provided roughly 320 entry-level positions, minimum-wage jobs, that for which they did not provide a health benefit and they are generally looking at the second wage earner being the one who did this job.

there are looking at the $2,000 fine that they will now have for -- or the full time in equipment and -- full time equivalent but they will ever have to stop what they're doing, so businesses and retire or something different but they cannot continue to do what they're doing. this is a couple that was providing 350 entry-level positions for people at the beginning of the job market. that is an area that was replicated across the broader economy over and over again. we're also frightening people with the pop -- with financial regulatory reform where people did not know what to expect from the next corner. the 50 pages of tax cuts that are going to expire that adds to the uncertainty. where do we began to ratchet

back the uncertainty that we are providing to the small business person that prevents them from adding a job right now or worse yet, it may make them look at having to have the work force because i cannot do what you want me to do. >> we have heard around the country that uncertainty, both economic and policy uncertainty, uncertainty about regulatory and garments of light, has had some adverse effects on businesses because they did not know how to plan or exactly what the environment will look like. while it is important on these issues of health care and environment and berlin toward reform and so on, the congress doesn't do process and come up with the best possible outcomes, earlier resolution and clarity is better than delay. that is certainly an issue to try to reduce debt overhang of

uncertainty. >> there were many more people asking us to look at the problems with joblessness then there were asking us to deal with the problems of global warming and health-care inequity. the numbers are stark. my time will run out. you were talking about the commission that had been -- that has been created. we do controlled -- we do control the purse strings. we're talking about meeting our long run fiscal challenges. i agree but i think that should come from a legislative body, not from an executive order on a death commission. are you familiar with tpaul ryan and his road map for the future? he tax rules -- he tackles

several different issues and tries to deal with the long-term fiscal future from that standpoint. would that be a better way of going about looking at this rather than the targeted reductions but the commission will come back with? >> in general, the entitlements, so security and medicare, are the biggest parts of the fiscal issue going forward. i think creative thinking in general about how to control those costs is extremely important. to go back to your question about health care costs, it is not just a fiscal issue. anything we can do to reduce the costs of health care and make it more efficient is going to help not only the federal budget but the functioning of the economy. i can only agree and encourage

any sort of creative thinking about bringing for proposals that come from congress. the trouble is by its nature, congress is often very focused on the near-term and it is hard to get the attention on some issues. " unfortunately, of this bill that we passed for health care did nothing to reduce the long- term costs of health care other than provide for rationing in the very near future. >> cbo estimates that it will save the comet $1 trillion over the next 10 years. what is your opinion of the primary source of risk to the recovery at this point in time and what is your assessment of the risk of a double-dip recession? >> i was always fairly humble

about forecasting. i have become extremely humble so i have to be extremely cautious. having said that, i think there is a pretty broad view that we are seeing some building momentum. consumer spending looks to be picking up. at least equipment and software investments looks healthy. the broader economy is stronger which implies more exports. it looks like we are on a path to moderate recovery and the risk of a double dip, while certainly not negligible, is certainly less than it was a few months ago. that being said, there are any number of possible things that could derail it. if consumers, under the pressure of a weak labor market and tough

balance sheets decided to become more conservative and slow their spending, a financial problem emanating from greece or whatever so far unknown source could cause problems. there are all kinds of scenarios you could imagine. oil prices being driven up by a geopolitical problem. one can certainly imagine, and one thing we do in our meetings is look at alternative stimulation and scenarios and alternate possibilities. it looks like financial markets are more stable and banks are working their way out of a period of hide losses and financial stress but they are making progress. the consumer looks to be doing

better. for all of those reasons, the best bet is a moderate recovery but again, forecasting is not a precise business. >> we are making progress but have not achieved a total success. what happens if the unemployment rate does not decline as the economy improves? >> that is it possible risk. we anticipate the unemployment rate is likely to decline relatively slowly and there are factors that will affect that. one is the pace of overall growth. if growth is moderate, that will not quickly lower the unemployment rate. secondly, the rate of productivity. following the 2001 recession, productivity gains were quite significant which is a good

thing generally but meant firms were relatively slow in bringing workers back because they did not need to. we have seen remarkable productivity gains and not anticipate growth to continue at that rate going forward but if it does, that may reduce the number of workers that firms need to bring back to meet demand. there is a possibility. there is a possibility that unemployment will remain stubbornly high, around 10%. that would be a risk we were just discussing because it would reduce consumer confidence and make them concerned about the ability to sustain their spending. >> you took some creative steps in creating new lending facilities. i believe the only lending facility still operating was talf and when does the fed plan

on closing that or do you plan on making it permanent? one group of represent is they -- one issue is they commercial real estate crisis and is there any action to protect against a crisis in commercial real-estate and where do you see this going forward? >> the only remaining facility is talf for commercial real estate. we left it in wonder for needs and it takes longer to bring the commercial mortgage-backed security deals to market. we are planning to close that on june 30 because we are only making those loans on emergency basis and we need to justify having this emergency program. we have seen improvements in the commercial security backed mortgage market. our plan is to close that at the end of june. on commercial real estate, for

many banks, that is a very big challenge. we are seeing some improvement. it is still going to be a few more quarters until banks have worked through their commercial real estate book and have gotten to the point where they have complete control and understanding of their losses and risks in that area. once again, as bank supervisors, the fed has issued new guidance on commercial real-estate. among other things, we want to encourage workouts in the same way that government policy has been to help presidential mortgages and help borrowers work out troubled mortgages, we would like to see the same